How small businesses can use SBIR funding to jumpstart their R&D
What is SBIR Funding?
SBIR is an acronym for Small Business Innovation Research and is powered by the Small Business Administration (SBA). There are several things we need to understand when beginning to talk about SBIR programs. Mainly, what the purpose of SBIR is, the eligibility requirements, and finally, what each phase entails and how much funding is available.
First, the SBA describes the SBIR programs as:
"…competitive programs that encourage domestic small businesses to engage in Federal Research/Research and Development (R/R&D) with the potential for commercialization. Through a competitive awards-based program, SBIR and STTR enable small businesses to explore their technological potential and provide the incentive to profit from its commercialization. By including qualified small businesses in the nation's R&D arena, high-tech innovation is stimulated, and the United States gains entrepreneurial spirit as it meets its specific research and development needs."
Any Federal agencies with extramural research and development (R&D) budgets that exceed $100 million are required to allocate ~3% of their budget to fund small businesses through the SBIR program. Currently, eleven Federal agencies participate in the SBIR program: Department of Agriculture, Department of Commerce, Department of Defense, Department of Education, Department of Energy, Department of Health and Human Services, Department of Homeland Security, Department of Transportation, Environmental Protection Agency, NASA, and the National Science Foundation.
Next, to be eligible for SBIR funding your company must be; 1) Organized for profit, 2) More than 50% owned and controlled by a US Citizen or permanent resident alien of the United States, 3) Have no more that 500 employees including affiliates, and 4) meet NAICs specific small business requirements.
Finally, lets go over the phases of SBIR programs. SBIR awards consist of:
Phase I- Initial phase of SBIR programs where your company would establish the merit, feasibility, and commercial potential of the R&D efforts. At the end of Phase I your company will be judged on the quality of performance over the period of Phase I. Phase I funding is generally between $50,000-$250,000 for 6 months.
Phase II- This is where your idea truly begins to come to life! In Phase II your objective is to further develop the R&D efforts from Phase I. Depending on the type of SBIR program you may be developing a prototype for stakeholders to test at the sponsoring agency. Phase II awards are generally $750,000 but can range upwards of $1.5MM for a 2-year period; there is often a formal check-in made by the sponsoring agency at the 1-year point to verify continued quality of performance.
Phase III- You have made it! In Phase III your idea is fully developed and ready for commercialization. Phase III is not a funded phase but rather a hand-off phase to more formal production or research contracts with the sponsoring agency and any additional stakeholders involved during the previous phases.
How can I use this to jumpstart my company?
Now that we understand the basic framework of the SBIR programs let's discuss how you could use them to jumpstart that great idea you have. If you are a problem solver but don’t have the immediate funding to begin R&D out of your company’s pocket. Responding to and winning an SBIR award will help your company with the capital to begin development of innovative ideas, research, or products. While the SBIR program does not guarantee the Federal agency will grant full funding of your idea (Phase III funding), the capital from successfully participating in an SBIR program can get your idea and product off the ground. BEWARE, do not plan on making a huge profit in Phase I and II; many of the agencies expect that the profit margin will be no higher than 7%, and you have to ASK for it in your cost proposal.
How do I get started with SBIR?
All you need to get registered to bid on SBIRs is a DUNS number and an EIN. DUNS is the acronym for Data Universal Numbering System which is a proprietary system developed by Dun & Bradstreet that assigns a unique numeric identifier, referred to as a "DUNS number" to a single business entity. An EIN or Employer Identification Number is a unique nine-digit number assigned by the Internal Revenue Service to business entities operating in the United States.
SBIR.gov also strongly encourages verification with SAM (System for Award Management). This is because a company must have an active registration in SAM to do business with the Federal Government. To be verified in SAM you must have the aforementioned DUNS number and EIN as well as your bank's routing number, your account number, and account type, to set up Electronic Funds Transfer (EFT).
If you are interested in learning more visit the websites listed below or take a look at webinars directly from SBIR.gov at https://www.sbir.gov/events/webinars. You can also reach out to VanDruff Strategic for assistance with SBIR submission or administration.
https://www.sbir.gov/ -SBIR Website
https://www.dnb.com/duns-number/get-a-duns.html -DUNS Website
https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online -EIN Website
https://www.sam.gov/SAM/pages/public/generalInfo/aboutSAM.jsf -SAM Website